Tuesday, March 30, 2004

Anyone who has seen the film "28 Days Later" would probably agree with us that it's a terrifying portrayal of the spread of a virulent pathogen and its transforming effects. Making a comparison with a consumer internet application may be a bit far-fetched, but we are nevertheless struggling to find a better analogy as we watch the apparent progess of Skype, a distributed P2P VoIP application developed by the founders of KaZaA. Ideally, we'd like to see some audited numbers and estimates of active users, but for the time-being all we have to go on is the company's own download counter. Even this suggests some pretty scary implications for the voice market.

The beta version of Skype launched quietly on 29th August, and in the first 12 days racked up 110,000 downloads (9,200 per day on average). When we looked at the site two days ago (16th September, six days after the 110,000 mark was reached) the counter said 240,000 downloads (this suggests that downloads had accelerated to 22,000 per day over the period). This morning, 48 hours later, the site shows 375,000, suggesting 67,500 downloads per day. In other words, the number of new users coming onto the network appears to have accelerated by a factor of seven in the past week, and has trebled in the past two days. If the current growth rate continues we should easily see 1 million downloads by early next week. KaZaA itself, already the most downloaded application on the net at somewhere around 270m, claims to have done 2.6m downloads last week, or 370,000 per day, even in its "mature" phase. If Skype attains a comparable rate of downloads from here, we could see 6m users by January 1, and we believe this is an extremely conservative scenario.

The concept of the "network effect" suggests that this rate should actually accelerate from here, as more users become aware of the service from friends and are motivated to sign up. It is also important to remember that the application has still received no coverage in the mainstream financial press (a Google search this morning still shows only the CNET article from last week, and a few postings to geek sites). We think that once the service receives a bit of mainstream attention, awareness will increase significantly, and with it the number of users. The critical "tipping point" for VoIP may be upon us.